Navigating the landscape of sustainable investing: a deep dive into sustainable funds

4 October 2023

At Nordic Sustainability, we are dedicated to ensuring that our planet remains safe, livable, and green for the generations to come. We firmly believe that responsible investing, guided by clear and accurate sustainability criteria, is pivotal to achieving this vision. Recently, our commitment to transparency and authenticity in the realm of sustainable finance was featured in an article by Ignites Europe. We extend our gratitude to Ignites Europe for their recognition and to Ottilly Mould for her invaluable contributions to our mission.

The greenwashing conundrum 

Amid the escalating global climate crisis and widespread social inequalities, the demand for sustainable investment opportunities has skyrocketed. Investors are increasingly seeking options that align with and champion environmental, social, and governance (ESG) values. However, this growing appetite for sustainability has, in some cases, given rise to an unsettling phenomenon – greenwashing. 

Greenwashing occurs when investment products are marketed as sustainable, often using terms such as ESG, impact, green etc., but their underlying characteristics do not live up to these claims. Recent research conducted by the CFA Institute sheds light on this pressing issue, revealing inconsistencies and contradictions in the screening criteria of European sustainable funds. These discrepancies not only confuse investors but also contribute to the occurrence of greenwashing within the industry. 

8% of the examined funds face greenwashing risks 

The study, as presented in the Ignites Europe article, examined 60 funds that incorporate ESG factors, with a focus on retail investors. It uncovered instances where investors could be misled due to disparities between fund documents. For example, one standalone SFDR disclosure states a fossil fuel extraction revenue threshold of 5%, whereas the prospectus states a thermal coal mining revenue threshold of 10%. These discrepancies can lead investors to believe that the fund’s exclusions are stricter than they actually are. 

The study also revealed that 8% of the examined funds face greenwashing risks, emphasising the need for vigilance in sustainable investing. 

The CFA Institute acknowledged the challenges of uncovering and proving greenwashing solely through documentation. Access to internal records and third-party research is often necessary, but this information is typically beyond the reach of retail investors. Even if they had this information, they most likely do not have the knowledge base to critically assess it.  Therefore, analysing greenwashing requires judgment and may yield varying conclusions. 

Regulatory influence: a tale of two continents 

The study also pointed out potentially confusing differences in information between North America and the EU, attributing this contrast to regulatory variances. The EU’s Sustainable Finance Disclosure Regulation (SFDR) plays a significant role in ensuring transparency by requiring additional ESG disclosures. In contrast, the US currently lacks comparable disclosure requirements.

Our perspective on greenwashing: a call for science-based clarity 

As advocates for sustainability, we applaud the CFA Institute for shedding light on these issues. Ottilly Mould, our Sustainable Finance Lead at Nordic Sustainability, shares her insights on this critical issue. In the article, she suggests that the true extent of greenwashing most likely surpasses the study’s findings. The report’s definition of greenwashing focuses on the confusion a retail investor might experience when fund claims do not align with actual activities. While this is undoubtedly important, Ottilly asserts that greenwashing should be evaluated in the context of science-based regulation and standards such as SBTi and SFDR. The complexity sustainability requires knowledge on the interconnectedness of real-world impacts which take time and data to assess.  

Ottilly views this as especially important in the asset management sector, as she recognizes finance as one of the most integral levers to support our planet’s transition. “We need a clear and consistent understanding of what is sustainable vs not to ensure that money is being invested in the right places”.   

At Nordic Sustainability, we have always championed the values of clarity, authenticity, and science-based sustainability. We are dedicated to not only identifying greenwashing but also actively working towards a financial sector that genuinely contributes to a more sustainable world. We offer a range of services, including EU regulatory compliance, sustainability strategy, and net-zero planning – all designed to empower our clients on their sustainability journeys.

Towards a greener future

The CFA Institute’s research, as shared through the Ignites Europe article, serves as a crucial reminder of the need for transparency, accountability, and regulatory alignment in the world of sustainable finance. At Nordic Sustainability, we stand committed to these ideals. We invite you to join us on the journey forwards a more sustainable future as we continue to navigate the complex landscape of sustainable investing, ensuring that our actions match our aspirations. Together, we can build a future where sustainable finance truly lives up to its name. 

Author details

Ottilly Mould